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19 April 1982

To: All Oil, Gas, and Oil Sands Operators

This informational letter contains a summary of the policies and procedures respecting oil- and gas-well spacing currently applicable in Alberta. The letter consolidates and supersedes a number of informational letters that have been issued over the years * and also complements the following recent informational letters concerning this subject:

IL 81-23 - 11 August 1981
IL 81-30 - 11 December 1981
IL 82-4 - 13 January 1982
IL 82-13 - 7 April 1982

The development of pertinent aspects of the current oil- and gas-well spacing policy as it applies in various parts of the province is also reflected in the following Energy Resources Conservation Board decision reports:

• 74-5 Impact of petroleum Activities in Irrigation Area
  
  
• 78-5 Spacing and Target-Area Requirements for Oil and Gas Wells Drilled inthe Province of Alberta
  
  
• 80-8 Drilling Spacing Unit Target-Area Requirements for Oil and Gas Wells Drilled in the Grande Prairie Area
  
  
• 8l-20 Drilling Spacing Unit Target-Area Requirements for Oil and GasWells Drilled in the Province of Alberta
  
  
• 81-21 Drilling Spacing Unit Target-Area Requirements for Oil and Gas Wells Drilled in the Municipal District of Smoky River and the Bonanza Area
  
  
• 81-26 Application by Dome Petroleum for Reduced Spacing and Target-Area Requirements, Lindbergh Area

IL-OG 72-11 - 16 June l972 *
IL-OG 74-10 - 10 July l974
IL-OG 74-11 - 12 July l974
IL-OG 75-14 - 22 September l975
ID-OG 77-2 - 7 December l977
IL-OG 77-9 - 4 October l977

Board Decisions 78-5 and 81-20 provide an extensive review of oil- and gas-well spacing practices in the province. For convenience, however, a brief review is included here.

1.1 Past Spacing Practices

Initially, standard oil-well spacing was one legal subdivision (16 hectares or 40 acres) with the target area for the well in the centre of the legal subdivision. In 1961, the standard oil-well spacing was converted to one quarter section (64 hectares or 160 acres) with the target area in the southwest legal subdivision. Also, from time to time over the years, a variety of spacing provisions for individual oil developments had been implemented with the well spacing ranging from 4 to 128 hectares (10 to 320 acres) and being influenced by such factors as reservoir geology, crude-oil gravity and viscosity, drilling depth, and anticipated oil allowables. In the meantime, standard gas-well spacing remained as one section (256 hectares or 640 acres) with the gas-well target being one of the interior legal subdivisions of the section.

In 1968, a strategic change was made, with the oil-well targets being shifted to the central 16 hectares (40 acres) in the quarter section while the gas-well target area was expanded to overlap the oil-well target areas such that a common area for oil and gas targets existed in all four quarters of a section. To accommodate the change and at the same time permit reasonable protection for off-setting mineral owners in developed pools, a buffer zone around,the perimeters of the previously developed pools was established. In effect, the new spacing provisions were applied to all undeveloped regions throughout the province, while developed pools were assigned spacing target provisions in accordance with the preexisting rules under which they were drilled.

1.2 SU 800 Spacing

In response to mounting problems caused by gas and oil developments in the irrigated farming areas of southeast Alberta, the Board, after a public hearing, issued Decision 74-5, setting out corner target locations for wells drilled in those areas south of township 31 and east of the 5th meridian. Since the spacing order setting out these provisions is Order No. SU 800, the area is frequently referred to as the SU 800 area. These provisions have been successful to a considerable degree in reducing land-use conflicts between irrigated-farming and petroleum operations.

In 1976, the Board was approached by the Farmers' Advocate and Unifarm to consider the possibility of extending the "SU 800" concept of corner target areas to other parts of the province. The request was considered at a hearing in April 1977 but the Board, in Decision 78-5 issued in April 1978, decided not to extend the SU 800 provisions to the remainder of the province. However, it expanded the central gas target area to improve the well target flexibility and thereby aid in resolving land-use problems.

1.3 Grande Prairie-Type Corner Targets

In response to a request from farmers in the Grande Prairie area in 1980, the Board conducted similar hearings and subsequently adopted special corner target provisions intended to promote the location of well sites very close to the quarter-section boundaries in such a way as to minimize intrusion of roads and well sites within the quarter-section boundaries. This became known as the "Grande Prairie type of spacing", and triggered requests from a wide spectrum of the agricultural industry for a full review of the possibility of extending this form of provision to all remaining undeveloped regions of the province. As a result, the Board held hearings in 1981 and issued Decisions 81-20 and 81-21 extending the provisions for corner targets to many of the remaining agricultural areas of the province as set out in Order No. SU 1088. The exclusions to SU 1088 are: already developed oil and gas pools; the forested (green) areas, and the SU 800 area which was already accommodated.

If an operator sees a need to locate a well outside the prescribed target area, he should seek the necessary change to the spacing or target area prior to licensing a well. For example, in some circumstances the prescribed spacing or target area may need to be changed to ensure efficient pool development or to minimize land-use conflicts. Also, the change may simply involve a change in target .location for a single well, whereas in other cases it may involve wholesale change in target location and spacing size for a large pool development area. In all instances questions of energy-resource recovery, mineral-owner equity, and landowner concerns should be fully addressed in an application. The following is a brief review of several ways in which an application for change in spacing or well-targets may be pursued.

3.1 Section 4.030
Request for a Spacing Order (SU order)

Section 4.030 of the Oil and Gas conservation Regulations provides for the establishment of special drilling spacing units that differ from normal drilling spacing units in size, shape, or target area. Hence, most applications for a change from existing "normal" spacing as prescribed under section 4.020, SU 800, or SU 1088 spacing, or for a change to a subsisting field spacing (SU) order are made under this section.

An applicant is required to provide a set of information, as specified in section 15.160 of the regulations, that will permit other mineral owners and surface landowners in the area to readily examine the potential effects of the proposal on their interests.

3.2 Section 4.030
Pre-1968 Policies for Certain Wells or DSUs

For an off-target well or a DSU with more than one well that qualifies under the following categories, approval of applications made under section 4.030 of the regulations for a special target area may be granted after advertising:

A well drilled prior to 1968 that resulted in the discovery of a pool.

A well drilled prior to 1968 for which there was good reason for having drilled off-target, provided that a well of equivalent quality could have been drilled on the prescribed target, and, that conservation and correlative rights will not be adversely affected.

Where a DSU contains two or more wells capable of producing and the operator wishes to produce the off-target well, the off-target penalty may be removed having regard for conservation and correlative rights.

3.3 Section 4.035
Special Spacing for Experimental Schemes

Section 4.035 of the regulations is new and will provide for special DSUs for an experimental scheme. The special DSUs may differ from normal drilling spacing units in size, shape, or target area.

The section will state:

"(1) Notwithstanding section 4.020, the Board may, after a public hearing or after publication of notice, by order prescribe for an experimental scheme

(a) special drilling spacing units as to size, shape, and target area, or

(b) an area within which wells may be drilled in accordance with an experimental scheme approval, such area not having any specific drilling spacing units as to size, shape, or target area.

(2) An application for an order pursuant to subsection (1) shall conform to the provisions of section 15.160 concerning such applications."

Operators planning an experimental scheme that would involve a relatively standard drilling spacing unit (in size, shape, and target area) should apply under subsection 1(a). A special drilling spacing unit order (SU order) would be issued under this subsection.

An operator would apply under subsection 1(b) for an experimental scheme involving an irregular or skewed well-spacing pattern that could not be accommodated under the regular land survey system concept. A miscellaneous (Misc) order, which could specify such things as drilling spacing unit size and shape, minimum interwell distances, and buffer zones, would be issued under this subsection.

3.4 Section 4.060
Geologic, Topographic, and Other (GTO) Order

Section 4.060 provides for the suspension of target-area requirements where it can be shown that local geologic or topographic or other conditions make it impractical to develop the area by drilling on the prescribed target areas, and provided that the rights of owners of contiguous drilling spacing units are not adversely affected. The section is intended to resolve drilling-location problems in areas of largely common ownership and should be applicable to either entire pools or at least a block of several drilling spacing units. Applications under this section are granted only after a public hearing or publication of notice. A GTO order identifies the areas involved and often specifies minimum interwell distances. Well spacing density in the area is normally not changed. The GTO provision has been applied to particular advantage in foothill areas where terrain, drill hole deviation, and reservoir structure present unique difficulties in drilling wells within prescribed target areas.

3.5. Section 4.070, SU 800, and SU 1088
Calculation of Off-target Penalty Factors

Section 4.070 specifies the calculation procedure for determining the off-target penalty factor if a well is completed outside the target area prescribed in section 4.020 of the regulations.

For wells completed outside the target area as prescribed in Board SU Orders No. 800 and 1088, the penalty factors are calculated in accordance with the methods prescribed in those orders.

Off-target penalties automatically take effect except when suspended under certain conditions described below. Permanent removal of an off-target penalty can be obtained through successful application under section 4.030.

3.6 Section 4.070 Subsection (3)
Suspension of Off-target Penalties

Continuing the practice established in the past few years, the Board will consider requests by letter to suspend the off-target penalty for a gas or oil well when one of the following circumstances applies:

(a) Single-well Pool

The off-target penalty factor will automatically be suspended when the off-target well is the only well in the Board-designated pool.

(b) Multiwell Pools

In a multiwell pool where the ownership is common, the Board may suspend the application of an off-target penalty factor upon request. In such cases, the initiative must be taken by the operator to satisfy the Board that common ownership exists throughout the Board-designated pool and that production via off-target wells, without penalty, appears reasonable having regard for conservation.

(c) Reinstatement of Suspended Off-target Penalty

If an additional well capable of production is completed in a single-well pool as initially classified under paragraph (a) and the ownership in the pool is not common, the off-target well would immediately become subject to its prescribed off-target penalty factor. By the same rule, if an off-target penalty has been suspended in a multiwell pool under (b) and new developments nullify the common ownership, the off-target penalties take effect immediately. However, it should be noted that administrative procedures reflecting the reinstated penalty factor may lag somewhat, as several months could elapse before the Board staff becomes aware of the changed status. While it is primarily an obligation of the owner of the off-target well to abide by the regulations by promptly conforming with the reinstated off-target penalty, the Board also considers it the responsibility of other owners in this kind of situation to ensure that their rights and interests are maintained by being aware of the developments in the pool.

For the purpose of defining common ownership it is also necessary to establish the capable-production status of wells in the pool. The Board considers a "gas well to be capable of production" when a suitable test has demonstrated to the Board's satisfaction that the well is capable of producing gas at a commercial rate on a sustained basis even though the well may be suspended or shut in. The Board considers an "oil well to be capable of production" at the time when the well is placed on production.

(d) Requests for Revision of Off-target Penalty Status

Where a penalty factor has been suspended under rules (a) or (b) above, an interested party may apply to have the penalty reinstated, if it can demonstrate that the common-ownership status in the pool no longer applies.

Similarly, where a penalty factor is now being applied, and an operator can supply evidence that the pool now qualifies under paragraph (a) because wells have been suspended or abandoned, or under paragraph (b) because of the establishment of common ownership, suspension of the off-target penalty factor may be granted.

The numerical value and status of the off-target penalty of non-confidential wells is public information. Inquiries regarding the off-target penalty factor of non-confidential oil wells should be directed to the Oil Department (Proration Section) and for non-confidential gas wells to the Gas Department (Pressure and Deliverability Group).

3.7 Section 5.010 Subsection (2)
Infill Wells

Infill well (IW) orders are made pursuant to section 5.010(2) of theregulations for the purpose of productivity or conservation improvement in enhanced-oil-recovery projects through improved drainage. Enhanced-recovery projects developed on uniform spacing may result in regions of the pool being unswept. Also gas- and water-coning or fingering may cause premature loss of well productivity, thereby reducing efficient drainage. In such cases, oil recovery may be increased by drilling infill wells on an irregular pattern to contact undrained regions and to counteract coning and fingering losses.

Applications for IW orders should comply with the general content requirements of section 15.160 of the regulations. Because the situation is often quite localized and unlikely to affect other owners, drainage of off-setting lands may not be an issue; also, evidence concerning the economics of infill drilling is not ordinarily required. However, the applicant must set out the need for the order, expected recovery and productivity benefits, proposed drilling locations, proximity of infill wells to project boundaries, and suggested minimum interwell distances.

Following Board approval of such an application, an IW order is issued identifying the area involved and any minimum distance provisions. As an allowable control measure, the IW order usually specifies that only one oil-well minimum allowance will be assigned for each developed drilling spacing unit.

4.1 Section 7l Subsection (4) Misc Orders for Units and Blocks

Section 71 of the Oil and Gas conservation Act authorizes the Board to vary any provision of the Act or regulations regarding units or blocks. In most cases, the provision is used where a unit has been formed to cover much or all of a pool.

The section is employed in two ways:

(a) To vary spacing regulations to permit infill drilling without regard to well density or orientation in order to improve conservation or increase productivity.

(b) To remove off-target penalties for subsisting wells for as long as the unit or block is in existence.

Applications under this section will receive favourable consideration if the rights of other owners will not be adversely affected, if the unit is also subject to an enhanced-recovery scheme, or if the unit includes the whole of a pool and the extent of that pool is fully delineated.

Application under this section must comply with the general content requirements of section 15.160 of the regulations.

Following approval of such an application, the Board will issue a miscellaneous (Misc) order referring to the unit or block area and sometimes specifying a minimum interwell distance. For oil blocks, an order may also specify a limit of only one minimum allowance for each developed DSU.

5.1 Oil-well Off-target Penalty Factors: GPP Pools, Well Minimum Allowance

Where the Board has assigned good production practice (GPP) status to an oil pool, pursuant to IL 82-15, the goals of conservation and correlative rights must continue to be satisfied. When necessary, the Board may rescind GPP status to achieve those goals. For example, if a well is drilled off-target in a GPP pool, production from the well may be restricted by specifying a maximum-rate limit for the well and then applying the off-target penalty factor.

Where oil wells are subject to an allowable equal to the well minimum allowance, the Board's usual procedure is to not reduce the allowable to less than the minimum allowance through the application of off-target penalty factors. Nonetheless, if such an oil well is located significantly off-target to the extent that correlative rights are adversely affected, the Board may, upon the request of an off-set owner and after considering the views of the off-target well owner, assign a maximum-rate limit less than the minimum allowance.

5.2 Licensing for Oil or Gas DSUs

As a routine practice the Board will license a well under section 2.020 of the regulations, on the basis of the drilling spacing unit specified in the licence to which the applicant has the rights. Thus wells are sometimes licensed on the basis of applicable quarter-section oil DSUs but, when drilled, establish gas production, for which a one-section gas DSU is required. For such a well, production of the gas will not be permitted until the licensee has obtained the appropriate agreement for the gas rights to the entire gas drilling spacing unit.

In some cases where an applicant has applied for a well location in the common oil and gas target area so as to be fully eligible to produce either gas or oil without penalty, a landowner or occupant might object to the proposed location. In these cases the Board would expect the applicant to show that it held the rights to the entire gas DSU (normally the whole section). In dealing with the landowner's concern, the Board would require the applicant to demonstrate that it had considered all alternative common gas and oil targets in the section and that the location chosen was the most appropriate from all viewpoints.

5.3 Public Notification of Spacing Changes

In order to ensure that operators are aware of applications for a change in spacing, applications under section 71(4) of the Act and sections 4.030, 4.035, 4.060, and 5.010(2) of the regulations are advertised for objection. If objections are received, a hearing is held to consider the contentious issues. However, letters requesting suspension of an off-target penalty factor under section 4.070(3) are processed administratively and are not subject to publication of notice.

5.4 Landowner Concerns

Recently the Board has noted an increasing incidence of conflict between owners of surface and mineral rights in cases where the latter have submitted applications for a reduction in spacing, especially where it involves a significant increase in the number of wells per section. To make it easier to assess the impact of reduced spacing on landowners, section 15.160 of the regulations is being amended to require that the applicant provide the following:

A list of the addresses of the surface owners or occupants concerned.

A statement pertaining to present land use; for example: farmland, ranch land, forested land.

A commentary on the impact that increased well density may have on current and future land use within the area of application.

An indication as to whether or not the proposed spacing or target-area change has been discussed with the affected individuals and as to their general reaction to the proposed change.

The Board will continue to publish notification in regional and local newspapers for most applications for spacing change. However, if a particular landowner problem is identified, the Board may direct that notice be provided to each landowner. Alternatively an applicant might choose to address a particular landowner concern through a separate application.

Further inquiries concerning this subject may be directed to:

Well Licensing Section, Development Department
Well Test and Deliverability Section, Gas Department
Engineering Section, Oil Department

[Original signed by]

N. Strom
Board Member

End of document

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